Environmental Protection and the Rule of Law in China's Energy Sector

The future of China’s energy industry will include market-oriented reforms. Property rights are a fundamental right in a market economy, and the protection of property rights is a cornerstone of a market economy. The definition and protection of the energy industry’s property rights include the precondition that any enterprise, including various State-owned enterprises (“SOEs”), the three major State-owned oil companies, as well as privately owned and foreign-invested enterprises, can enter the energy industry. The definition and protection of the industry’s property rights also includes the necessary condition that the energy industry initiates market-oriented reforms. With China’s energy sectors’ gradual evolution from the traditional model of State-run monopolies to that of a limited open-market model, the definition and protection of property rights in China’s energy sectors naturally have become an important part of the country’s relationship between energy and the law. At the same time, gradually creating a legal environment comprised of a constitution, laws, administrative regulations, local regulations and judicial remedies would be the key for China’s successful economic reforms. This point also applies to the energy industry’s market-oriented reforms.

However, we also need to realize that at present, any nation’s, be it a nation governed by the rule of law or a nation that is transitioning towards the rule of law, property rights are also subject to various restrictions under the law. One kind of restriction is based on environmental laws and borne out of externalities that are a result of enterprises that pollute the environment. For any enterprise, moral self-restraint alone is insufficient in preventing said enterprises from polluting. Moreover, when the law does not require enterprises to take responsibility for their actions, then any enterprise can act in its own self-interest in order to maximize its profits by freely ignoring or abandoning implementing measures that would prevent environmental pollution.